1011572538681 | Legal database

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Edited version of private ruling

Authorisation Number: 1011572538681

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Ruling

Subject Non-commercial losses - assessable income test

1. Did your non-primary production activity satisfy the assessable income test in section 35-30 of the Income Tax Assessment Act 1997 (ITAA 1997) for the year ended 30 June 2010?

Yes.

2. Are you allowed to include any losses from your non-primary production activity in the calculation of your taxable income for the year ended 30 June 2010?

Yes.

Relevant facts

You commenced your non-primary production activity in the year ended 30 June 2010 and carried on for only part year. You have provided details of your activity and the assessable income received for the period of operation in that year. You have also provided details of the assessable income generated for subsequent months after the end of that year.

Relevant legislative provisions

Income tax assessment Act 1997 section 35-30

Income tax assessment Act 1997 paragraph 35-30(b)

Income tax assessment Act 1997 paragraph 35-55(1)(b)

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Detailed reasoning

Division 35 of the ITAA 1997 allows the taxpayers to offset the losses from a business activity against other assessable income, if the income requirement in subsection 35-10(2E) of the ITAA 1997 and one of the tests are satisfied in that income year.

One of those tests is the assessable income test under section 35-30 of the ITAA 1997. Essentially, this test is satisfied if the activity generated more than $20,000 assessable income during the income year in question.

If the business activity had only traded for part of the year, the test will still be passed if, based upon a reasonable estimate, the assessable income would have exceeded $20,000 if the activity had been carried on for the entire year of income.

You satisfy the income requirement if the sum of your taxable income, reportable fringe benefits, reportable superannuation contributions and total net investment losses for an income year is less than $250,000.

The information you have provided suggests that your activity has commenced as a business and you have satisfied the income requirement for the year ended 30 June 2010. Based on a reasonable estimate, your activity would have returned substantial assessable income had you operated your activity for 12 months

As such, your activity has satisfied the assessable income test.

Therefore, any losses for your non-primary production activity can be taken into account in calculating your taxable income for the year ended 30 June 2010.

Summary

Your non-primary production activity has satisfied the assessable income test under paragraph 35-30(b) of the ITAA 1997 for the year ended 30 June 2010. In addition, the income requirement is also met. Accordingly, you are allowed to include any losses from your activity in the calculation of taxable income for that year.

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